By Zhang Wenkui, Research Department of Industrial Economy of DRC

Research Report No. 032, 2007

I. General Assessment on the Independent Innovation Status of State-owned Enterprises (SOEs)

In 2005, the industrial added value of state-owned and state holding enterprises reached RMB 2,606.3 billion yuan, accounting for 39% of that of the country's enterprises above the designated scale. Central enterprises occupy the dominant position in all state-owned enterprises. According to the information released by the State-owned Assets Supervision and Administration Commission of the State Council¹(SASAC), in 2005, 169 central enterprises realized a sales income of about 6,730 billion yuan, a total profit of 627.6 billion yuan and a total tax of 541.3 billion yuan, accounting for 58.4%, 69.4% and 54.4% of the total for the country's SOEs respectively.

1.Innovative resource advantages possessed by SOEs

SOEs, especially central enterprises, have incomparable advantages in obtaining scientific research resources. A large number of scientific professionals are concentrated in large-sized SOEs. According to relevant investigation proceedings², at the end of 2004, there were 731,000 scientific workers in central enterprises, accounting for 22.3% of the country's total; 6146 national level scientific professionals, accounting for 12.3% of the country's total; 179 academicians from the Chinese Academy of Sciences and the Chinese Academy of Engineering, accounting for 11.6% of the total number nationwide. There are 476 R&D institutions of various kinds in central enterprises involved in different trades such as military industry, petroleum and petrochemical industry, steel, nonferrous metals, machinery, automobile, vessels, rail transportation, telecommunication, architecture, building materials and medicine, etc., and many of these institutions boast the industry's best R&D strength and resources.

2.The increasingly strengthened innovation in SOEs

The independent innovations in SOEs have been strengthened constantly in the past several years. According to the relevant survey on³ over 2700 returned questionnaires related to intellectual property and other issues of SOEs conducted by the Enterprise Research Institute of the Development Research Center of the State Council from autumn 2005 to spring 2006, 54.5% of the enterprises interviewed have their own R&D centers; 55.7% have built their main products and processes on patented technologies, 76.7% of which are developed in-house; and 62.8% of them have proprietary intellectual property products.

Independent innovation in central enterprises is also increasingly active. According to SASAC⁴, the investment in scientific and technological development made by central enterprises reached 76.8 billion yuan in 2004, increasing by 218% over 2002 and 76% more than 2003. A two-digit growth was also maintained in 2005. In 2005, central enterprises applied for 10,031 patents including 4,462 patents for invention, with 4,948 patents granted including 1,657 patents for invention. Between 2002 and 2004, 22,943 new products had been put into operation by central enterprises.

3. Independent innovation by SOEs is not as active as that by non-state-owned enterprises

In general, independent innovation in SOEs is not as active as in non-state-owned enterprises, although its efforts on independent innovation in the past few years deserve much acknowledgement.

The investigation into more than 4,000 Chinese enterprises conducted by China Entrepreneur Survey System⁵ reveals that 54.3% of the enterprises increased their R&D investment compared with that of the previous year, only 8.2% of the enterprises reduced the investment to some extent, and the proportion of the enterprises with increased investment is thus 46.1 percentage points higher than the reduced ones. However, non-state-owned enterprises registered a 48% year-on-year increase in the R&D investment while SOEs registered only a 32% increase. Therefore, it is obvious that a non-state-owned enterprise increases the R&D investment more than an SOE, which shows less enthusiasm of SOEs in doing so. The investigation also showed that 52% of the enterprises saw an increase in the new product while 8.6% of them saw a decrease, thus the increase outnumbers the of decrease by 43.4 percentage points. However, out of that the non-state-owned enterprises increased by 45.4 percentage points while SOEs increased only 27.4 percentage points. Therefore, it is obvious that an SOE is much less active in the development and launching of new products than a non-state-owned enterprise. In the past several years, the proportion of added value of industrial SOEs above the designated size has been increased instead of being decreased. SOEs' sales income and net profit have been substantially boosted year on year and they have a large number of high-level scientific professionals. In spite of such a favorable condition, they have underperformed in terms of R&D investment growth and new product launching, showing their serious inadequacy in independent innovation.

4. Automobile industry: central enterprises are less active than local SOEs and private enterprises in terms of independent innovation

A comparative analysis of independent innovation made on SOEs and non-state-owned enterprises in a typical industry will be useful in illustrating the situation. Take the automobile industry as a typical example; China's automobile industry consists of central SOEs, local SOEs, private enterprises and enterprises with foreign investment. Meanwhile, the automobile industry is technology-intensive, especially in China the industry is at the stage of technology accumulation and independent innovation. In November 2006, the National Statistics Bureau released the list of the Top Ten Large-and-Medium-Sized Industrial Enterprises in Independent Innovation Ability⁶ in 50 industrial trades. The ranking was made by assessing 11 innovative resource allocation and output performance indexes in each industry, such as expenditure of R&D, quantity of patents for inventions, proportion of new product sales income, etc. Although this ranking may not entirely reflect the independent innovation status of enterprises, it still has an important reference value. The most innovative enterprises in the integrated automobile industry rank as follows: Chery Automobile Corporation, China National Heavy Duty Truck Group Co. Ltd., China FAW Group Corporation, Shanghai General Motors Co. Ltd., Shanghai Volkswagen Co. Ltd., Zhejiang Geely Automobile Co. Ltd., Chongqing Chang An Automobile Company Limited, Beijing Auto Foton Motor Co. Ltd., Weichai Power Co. Ltd. and Nanjing Automobile Group Co. Ltd.

Among these top ten enterprises, China FAW Group Corporation is the first automobile enterprise of its kind founded in the 1950s as well as a central SOE boasting a large number of innovation resources; Chery Automobile Corporation is a local SOE established at the end of the 1990s; China National Heavy Duty Truck Group Co. Ltd. is a local SOE manufacturing heavy trucks; Shanghai General Motors Co. Ltd. and Shanghai Volkswagen Co. Ltd. are joint ventures; and Zhejiang Geely Automobile Co. Ltd. is a private enterprise established just a few years ago. Obviously, the most influential and well-established SOEs do not enjoy a dominate position in independent innovation. The enterprise ranking the first is a local SOE set up just several years ago, and Zhejiang Geely Automobile Co. Ltd., a private enterprise with a short history ranked the sixth. While China FAW Group Corporation only ranked the third, another central automobile enterprise did not even enter the top ten lists.

...

If you need the full context, please leave a message on the website.

¹Li Rongrong: Speech at the Scientific and Technological Working Conference of Central Enterprises (April 2006).

²Survey data obtained by the Enterprise Research Institute of the Development Research Center of the State Council.

³The investigation led by Cheng Xiaohong, Director of the Enterprise Research Institute of the Development Research Center of the State Council.

⁴Li Rongrong: Speech at the Scientific and Technological Working Conference of Central Enterprises (April of 2006).

⁵"The entrepreneurs' judgment, Appraisal and Suggestion on Macro Situation, Operation Environment and Hot Spot of Reform", Investigation system of Chinese entrepreneurs, Management World, Issue 12, 2006.

⁶Information provided by the Social, Science and Technology Statistics Department of the National Statistics Bureau.